Retirement Formula based on the value of your house?

[bingybear]

Go look for the poll on the value of the house as % of assets. It was all over the place.

I wonder how well this works for someone with a house that is 5% of assets and one at 30% of assets.

It tells me I need to shed some of those moldy pieces of paper.

 

[jazz4cash]

So according to the folks here, one size DOES NOT fit all?
How inconvenient.

 

[RobbieB]

Fairly close for me too. Spooky?

 

[ugeauxgirl]

Spending was just a little higher than we expect, we have a little more more saved than #2. I can't believe I did all that in depth analysis for nothing...

 

[W2R]

Does anyone think this makes any sense at all?

No. It's rubbish.

For example,

Ha ha - including taxes we spend close the value of our house each year!

And me, living in my Dream Home, well, last year I spend 0.09 times the value of my house. What does that prove? Absolutely nothing except that spending patterns reflect what one wants to do with one's money, and that differs from person to person.

Journalism is dead. Like many of the articles people bring here, this one was motivated solely by greed, in other words by the desire to publish something, anything, for clicks, advertising money, and to meet a deadline. The author sees nothing whatsoever wrong in lying to the public as long as he gets HIS.

 

[Rowej]

Not even close for us. We can live on a lot less than #1, therefore by default #2 is incorrect.

 

[gstillson]

I live in a $5,000 van down by the river

0.3 x $5,000 = $1500 a year?

That doesn't even cover beer and lottery tickets for a month!

Stupid article.

 

[pb4uski]

https://www.marketwatch.com/story/t...is-based-on-the-value-of-your-home-2019-03-20

"Here’s the idea
1. Take the market value of your house, and multiply by 0.3. That is the income you need in retirement.

2. Take that number, and divide by 0.04. That is the value of the assets you need to retire with."

Does anyone think this makes any sense at all?

Does anyone manage their spending based on the current market value of their house? I don't think I know anyone like that.

Did anyone else laugh wen they read that this "elegant" solution came from someone at Wells Fargo Advisors?

Does repeating "The house drives everything." three times make it true?

No, its stupid. It seems to be a meld of housing costs being 30% of your expenses and the 4% rule. It suggests that someone with a $500k home needs $3.75 million to retire. To reiterate.... stupid.

I respect the first amendment, but there ought be a law prohibiting morons from publishing stupid drivel.

 

[FANOFJESUS]

https://www.marketwatch.com/story/t...is-based-on-the-value-of-your-home-2019-03-20

"Here’s the idea
1. Take the market value of your house, and multiply by 0.3. That is the income you need in retirement.

2. Take that number, and divide by 0.04. That is the value of the assets you need to retire with."

Does anyone think this makes any sense at all?

Does anyone manage their spending based on the current market value of their house? I don't think I know anyone like that.

Did anyone else laugh wen they read that this "elegant" solution came from someone at Wells Fargo Advisors?

Does repeating "The house drives everything." three times make it true?

Divide (#1) by half gets me in the ballpark.

 

[REWahoo]

Using a formula based on the market value of your house is ridiculous. The most accurate way to determine the income you need in retirement is to divide your shoe size by 0.0001.

 

[MarieIG]

Using a formula based on the market value of your house is ridiculous. The most accurate way to determine the income you need in retirement is to divide your shoe size by 0.0001.

 

[street]

Not even close.

 

[gauss]

Seems to work in the Midwest (suburban metro area) in our case with a paid off house. Cute.

It sort of calls back to "The Millionaire Next Door" argument. Don't live in a high cost "yuppie" neighborhood because there will be many social pressures to spend more -- live in a nice blue-collar neighborhood instead.

-gauss

 

[COcheesehead]

Seems to work in the Midwest (suburban metro area) in our case with a paid off house. Cute.

It sort of calls back to "The Millionaire Next Door" argument. Don't live in a high cost "yuppie" neighborhood because there will be many social pressures to spend more -- live in a nice blue-collar neighborhood instead.

-gauss

I am about to live in an upscale, golf course community and it sort of works for me.

 

[Yarnstormer]

Hahaha. Heck if I had a million dollar house I’d sell it and retire!

What a ridiculous idea!

 

[garyt]

At first glance it sounds ridiculous to me. What if one million dollar house is paid off and the other has 25 years to go on the mortgage? Seems those two examples would need different incomes?

 

[Gumby]

A. How much will you spend?
B. How much will you get from other sources (e.g. SS/Pension)?
C. What is the difference you need to cover? (A-B = C)
D. Multiply C by 25. That's how much you need in your portfolio.


Boom. Done. You can mail me the check.

 

[urn2bfree]

Oh no!

Our CURRENT income is too low according to this formula and my wife hasn't even retired yet!

We only spend about half what this formula says we need to have every year.

I guess I better go back to work. Or we need to move into a house worth half of our current house.

Oh, wait. This idiot does not know what he's talking about. Whew!

Basically he is saying we spend 30% of the cost of our home every year? Wtf?
Maintenance 1 -2% sure. Taxes- depend on where you live. anywhere from 0 - 2.44% (I think that's the highest, certainly less than 3). So that's 5%. Now where in the world is the other 25% coming from every year? Food is not going to be more than single digits. Health Care?
I don't see how 30% of our home value could possibly be our yearly expenses.

 

[donheff]

Not a useful yardstick. The guy is right that the income needed for retirement is relative and undoubtedly correlates with home value in the aggregate. But the cost of houses varies massively from place to place and the cost of living otherwise (while likely correlated) doesn't track 1 to 1. In my case, our living expenses (and we live fairly large) are about half what this would predict. If I moved to a medium sized town almost anywhere else, I could replicate my housing for far less than half the price. Other costs would also go down but not anywhere near half.

On the other hand. if I lived in Tucson or Dubuque in a house worth as much as my modest DC house, I would be in a McMansion. In that case I would probably also be "that guy" who wanted all the fancy clothes, cars, club memberships, et al that conformed to the author's yard stick.

 

[jldavid47]

I read the article. The guy is an idiot. There isn't one "one size fits all" formula that works for retirement planning. Even the 4% rule (which is mostly misapplied) isn't necessarily the best idea. Here's the process I use:


1) Estimate actual spending including taxes
2) Subtract social security, annuities (if any) and pensions (if any) from expected total income (including draws from assets)
3) Calculate expected invested assets based on conservative return estimates (I use 3% just to be safe).
4) Divide the result in step 2 by the result in step 3 to calculate the draw rate.


Note that because of RMDs, withdrawals will be forced upon you once you turn 70.5 whether you want them or not.



What I found during this exercise is that our draw rate will be under 4% prior to age 80 and over 4% beyond that due to RMDs that we can do nothing about. Overall, I think that's a good strategy - keep withdrawal rates lower early and let them slowly increase. Oh, and our total investable assets will be about 1/2 of what the article says we need. So much for "the house drives everything."


If you find your draw rate is uncomfortably high, you need to accumulate more assets. If it's sitting at 4% or lower, you are probably fine. YMMV.

 

[Andre1969]

Well, I just bought a $630,000 house. So for me, those numbers would come out to...

1) $189,000 needed per year.
2) $4,725,000 net worth requirement.

Those numbers are nowhere close. For awhile, my goal had been for FireCalc to say that I had a ~95% chance of making it on $60,000 per year, and to have investible assets of around $2M. But, after I bought the house, that all went out the window, as my mortgage payment is about $2940 per month.

Anyway, at this point, once I got to $2M, I don't think I'd pull the plug just yet. I had actually gotten within spitting distance of that back in August/early September, but like other goals in the past, once it came within reach, it suddenly didn't seem so lofty. And after making the down payment on the house, and then the stock market hiccups in October and December, and the furlough that put me out of work for five weeks, it was a wakeup call that I wasn't as ready as I thought I'd be.

I really haven't put too much thought, since I bought the house, on what my exact number would be. I have a feeling $3M would definitely do it for me. That would be $90-120K in income shooting for a 3-4% withdrawal rate (and not even accounting for SS). I don't even make $90K at my j*b, so I'm pretty sure I'd be happy with that range. This is vague, I know, but I guess somewhere between $2M and $3M NW would do the trick for me.

 

[pjm-7]

Way off. The income number is about three times what I live on.

 

[donheff]

Note that because of RMDs, withdrawals will be forced upon you once you turn 70.5 whether you want them or not.

The only withdrawal (from your portfolio) that is required is the tax. When DW's RMDs kick in four years from now they will amount to quite a bit more than our anticipated expenses. We will shift the excess into taxable accounts.

 

[Dtail]

The only withdrawal (from your portfolio) that is required is the tax. When DW's RMDs kick in four years from now they will amount to quite a bit more than our anticipated expenses. We will shift the excess into taxable accounts.

Agree. We have a large tax deferred portfolio and some availability for Roth conversions, but could go over the 4%WR down the road just due to the taxes owed.
Perhaps at 80+, it hopefully won't matter.

 

[Mdlerth]

All you one percenters can rest easy

A quick cross-check from the DQYDJ calculators shows that for the article's example home value of 1.4M, we find

• 30% of that is 420k income needed. This falls just a whisker shy of the 99%th percentile threshold of 434,455.

• Dividing by 4% we get 10.5M. This falls just a whisker over the 99th percentile threshold of 10,374,030 for net worth.

The obvious conclusion is that for us unwashed rabble swarming about in the poorer 99% of the population, retirement is an unreachable, purely hypothetical concept.

Good thing I found out now before I turned in my papers.